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2014 Semiconductor Health Viewed from the IC Market and Sector Growth


Year to date there are signs of sustainable growth for the semiconductor and electronics industry in general. Consumer confidence, while always open to vacillation, has generally improved as witnessed by demand for consumer electronics (CE) devices, such as the most recent offerings by mobile device OEMs. CE is not the only source of this year's growth, industrial automation and communication both are driving increases in equipment spending as the IC market continues to see demand grow globally.

Fab spending gaining

Recent reports from SEMI and their World Fab Forecast indicate continued growth will reach 21% for 2014 followed by 20% growth in front end fab spending in 2015. Both revenue and shipment growth combined are forecasted to see mid- to high-single digits for 2014, according to the SEMI report. Should 2015 spending reach a 20% year-on-year growth, that would mark the highest spending on fab equipment since 2007, according to SEMI.

Drilling down into the most recently monthly data, yesterday, SEMI released the August data for North American semiconductor equipment manufacturers. The data showed the continuation of an 11-month strengthening trend of book-to-bill orders holding at or slightly above parity (=1.0). The August ratio was 1.04, meaning that for every $100 billed for the month, $104 worth of orders was received, on a three-month moving average. While the month-on-month data showed a slight decrease, the year-over-year data show that the strength in equipment spending is holding and is sustainable at current levels.

These equipment data are important because they underscore what is happening in the rest of the semiconductor and electronics supply chain. The continued investment in semiconductor equipment at fab and test and assembly sectors indicates that there is positive momentum and confidence in the downstream manufacturing and assembly supply chain. Namely, that demand is there and forecasted to continue, as SEMI reports:

In addition to foundries, the World Fab Forecast report captures capacities across all industry segments as well as System LSI, Analog, Power, MEMS, LED, Memory and Logic/MPUs. The Logic/MPU sector is also expected to see some positive capacity expansion for 2014 and 2015. Flash capacity is expected to increase by 4% in 2014. Although we see more DRAM capacity coming online, DRAM is now slowly coming out of declining territory with -3% in 2014 and reaching close to zero by end of 2015.

Industrial and manufacturing automation gaining

One of the strengthening sectors we have seen in out supply chain is automation. While CE drives a significant amount of press attention, there is an equally strong movement in the industrial and manufacturing sector as plants are being upgraded and automation is extended. This investment speaks not only to the increased penetration of electronics into industrial sectors, but it also speaks to the growth of data analytics and Big Data across industry segments. We readily think of enterprise and consumer Big Data and data analytics driving server upgrades and cloud computing as well as the devices through which the data are captured. What we see in the channels, and what is underscored by the steady strength in equipment book-to-bill data, is that globally, demand for equipment continues and is diversified across sectors. As Tom Mariano in Solid State Technology offered, the rise in automation among industrial and manufacturing sectors is equally revolutionary to what has been going on in the consumer and enterprise sectors:

In the manufacturing industry, there is a parallel revolution also leveraging the same advanced information technologies – intelligent manufacturing. The adoption of robotics and automation in manufacturing is increasing precipitously. The use of 3D printing is exploding. Manufacturing machines are becoming more and more intelligent and warehouse automation is rapidly expanding. Intelligent manufacturing systems are dependent on data—data that is shared and acted upon at all levels.

Although the IC market share for industrial use is still holding in the 6% of total IC market share, according to IC Insights, there is solid growth in this sector that will continue to be a steady base for the semiconductor and electronics industry, as discussed in this review of Bill McClean's recent presentation. IC Insights' leading analyst noted in his address that the IC industry will continue to see steady, double-digit growth through 2016, followed by a -1% downturn in 2017.

Of note, is the analysis presented by McClean that the industry is moving from a bottom-up industry to top-down, meaning that growth will be driven by demand and spending capacity as opposed to what we've had thus far which is a supply driven industry based on production. That is a significant shift and one that will have important repercussions throughout the entire semiconductor and electronics supply chain, redefining relationships and the relationship of supply-demand dynamics to the industry's growth forecasting. Perhaps some of this change is foreshadowed in Bolaji Ojo's August editorial for Electronics Purchasing Strategies which provides an interesting dive-down into the TSMC supply constraint situation.

Lisa Ann Cairns, Ph.D.
Written on Friday, 19 September 2014 13:37 by Lisa Ann Cairns, Ph.D.

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